Accounting for Crypto Assets - Mining and Validation Issues

This Accounting Alert follows an earlier IFRS Viewpoint entitled "Accounting for Cryptocurrencies - The Basics" which was issued on May 17, 2018.

What’s the issue?

Currently, IFRS does not provide specific guidance on accounting for crypto assets.  This accounting alert seeks to explore the accounting issues that arise for miners and validators in mining and maintaining the blockchain in accordance with existing IFRS.

Framework for determining the appropriate accounting treatment

With the current lack of clear guidance, there is likely to be a large amount of diversity in practice as to what alternative accounting treatments may be acceptable for crypto assets and in particular cryptocurrencies.  Furthermore, as the use of blockchain technology evolves, more specific guidance is issued, and more standardised industry practice is established there may be changes in the current thinking around acceptable accounting treatments.

Until further specific guidance is issued, it’s necessary to obtain a detailed understanding of the particular type of cryptocurrency and use of blockchain being considered.  Therefore, we recommend following a framework to determine the most appropriate accounting treatment. 

The framework should consist of the following steps:

• Step 1 – Understand the blockchain environment the entity is operating in;
• Step 2 – Understand how the entity operates (solo or in a pool);
• Step 3 – Understand the rights associated with the particular cryptocurrency (or crypto asset); and, 
• Step 4 – Apply existing IFRSs to the specific facts and circumstances based on the understanding obtained above.

The world of cryptocurrencies, and more importantly the growth in the number of applications of the underlying blockchain technology, is evolving fast.  This results in it being difficult to create a standardised taxonomy for crypto assets. 

While this viewpoint provides guidance on the general accounting considerations relating to the cryptocurrency mining industry, each specific situation should be assessed based on its own underlying facts and circumstances.